What You Need To Know About Social Security's Future

Bob Giusti

As the Presidential Election of 2020 begins to take shape, we are once again hearing the key buzzwords that US pollsters and political consultants are picking up and marketing in places like Iowa and New Hampshire as pre-caucus candidates get their talking points in order.

Social programs, like universal healthcare (Medicare for all) and green initiatives to combat climate change are all the rage. Democrats are hoping to parlay that platform into victory.

In stark contrast, Republican leadership still is touting spending cuts to social programs as the only solution to an out of control federal deficit.

This is an opportunity to take a look at the Social Security program, usually referred to as the third rail of politics. You don’t touch it, especially mentioning cuts to the program. It’s political suicide.

To understand SS you have to take a look at the average American life prior to FDR signing The Social Security Act in 1935.

Life expectancy was only sixty years for white males, and forty-seven for black men. Seventy-five percent of all Americans died penniless (abject poverty) and couldn’t even afford their burial (that figure was almost 100% for black Americans). There was no middle class.

First Lady Eleanor Roosevelt was the mastermind behind the ambitious program as a way of helping people rise out of poverty. By 1937, the program launched with 53,236 beneficiaries and the payout for that year was $1,278,000.

The eligibility age was sixty-five after all, and given that low life expectancy, if you made it to that age, you certainly weren’t expected to be a beneficiary for very long.

Then as the quality of life improved because of SS (and later Medicare), the average life expectancy increased almost 10 years. The baby boomers became eligible and the beneficiaries of 2018 were now 51,000,000 and a whopping $615,344,000.00 annual payout.

But then the myths came into play. Right wing conservatives began attacking the SS program as an entitlement like welfare, when in fact it is separately funded by a deduction from your weekly paycheck. Left wing proponents passed the myth that Congress was pilfering the fund and causing it to risk becoming insolvent.

This last component, the depletion of Social Security's asset reserves, is what usually sets the imagination of the American public into overdrive. For example, in 2015, having known for about three decades that the current payout schedule wasn't sustainable, a survey from Gallup found that 51% of nonretirees didn't expect Social Security to provide them a benefit when they retired.

This idea that Social Security will go bankrupt and not provide a benefit for today's workforce is probably the program's longest-running myth.

Social Security can't go bankrupt.

It’s 12.4% payroll tax on earned income between $0.01 and $128,400, as of 2018, ensures that the program is always generating revenue that can be disbursed to eligible beneficiaries. Mind you, this doesn't mean the current payout schedule is sustainable beyond 2034, but it does ensure, short of Congress changing Social Security's primary funding mechanism, that the program can't go bankrupt.

Social Security Administration takes this extra cash, which would be earning nothing if it were sitting around in a trust, and invests it in various special-issue bonds. To a lesser extent, it certificates indebtedness, with staggered maturity dates ranging from a year to perhaps longer than a decade from now.

placing this excess cash -- which has been built up since 1983 as a result of Social Security being a cash-flow positive program -- into special-issue bonds and certificates of indebtedness, it earns interest. In 2016, $88.4 billion of the $957.5 billion in revenue that was generated came from interest income earned on its bonds and certificates of indebtedness.

So now you know. Despite what politicians claim on either side of the aisle, Social Security works, and it does so because it is specifically funded separate from income tax in an equitable manner that does not benefit the rich any more than the lowest income citizens.

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